fortigent alternative investment strategies model wealth...

Fortigent Alternative Investment Strategies Model Wealth Portfolios

©2012 Fortigent, LLC.

Important Disclaimers

The information provided is for educational purposes only and

is not intended to be, and should not be construed as,

investment, legal, or tax advice. Past performance is not a

guarantee or indicator of future performance.

Fortigent makes no warranties with regard to the information

or results obtained by its use and disclaims any liability arising

out of your use of, or reliance on, the information.

The information is subject to change and, although based

upon information that Fortigent considers reliable, is not

guaranteed as to accuracy or completeness.

1


About Fortigent

2


Fortigent Background

3

High Net Worth Focus

■Over 15 years as a premier outsourced

provider for advisors serving high net

worth clientele

* As a division of CMS Financial Services

** Included in the $50 billion in assets on platform

HEADQUARTERS

Greater Washington, DC

FOUNDED

1996*

EMPLOYEES

100+

ASSETS ON PLATFORM

$60 billion+

ALTERNATIVE INVESTMENT ASSETS

$8 billion in alternatives**

MEDIAN END CLIENT SIZE

$7 million+

SEC-registered Investment

Advisor


ASSET ALLOCATION

DUE DILIGENCE

MARKET RESEARCH

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

4

Deeply experienced research team provides guidance on more than $8

billion in alternative investment strategies

■ More than 15 years of experience analyzing and recommending AI strategies

■ Industry thought leader on appropriate inclusion of AI strategies within diversified

HNW portfolios

■ Innovative core/satellite portfolio construction approach for building appropriate

AI exposures

First

implementation

of alternative

investments in

client portfolios

Fortigent

predecessor

begins offering

outsourced

investment

research

Inclusion of AI strategies

benefits investors through

the 2000 bear market (tech

crash)

First multi-

strategy AI

mutual fund

added to

Fortigent

platform

Fortigent first

begins

recommending

AI mutual funds

Fortigent

clients surpass

$5 billion

invested in AI

assets

Inclusion of AI

strategies

benefits

investors

through 2008-

2009 financial

collapse

Introduction of

core-satellite

framework for AI

investing

Fortigent

clients

surpass $2

billion in AI

mutual fund

investments


Launch of

Fortigent Model

Portfolios

Historical Focus on Alternatives

Why Alternatives?

5


WHY ALTERNATIVES?

What are alternative investments?

6

©2013 Fortigent. For Financial Professional Use Only.

“Alternative investing” simply means less

constraints on the way the portfolio is managed:

■ Inherently active approach

■ Can trade across asset classes

■ Less constrained by benchmarks

■ Ability to go long or short

■ Flexibility to use derivatives

Nontraditional investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the

management of alternative investments may accelerate the velocity of potential losses. Long/Short is an investment strategy generally associated with hedge funds. It involves buying long equities

that are expected to increase in value and selling short equities that are expected to decrease in value. Derivatives are not suitable for all investors and certain options strategies may expose

investors to significant potential losses such as losing the entire amount paid for the option. Currency Risk is a form of risk that arises from the change in price of one currency against another.

Whenever investors or companies have assets or business operations across national borders, they face currency risk if their positions are not hedged. The fast price swings in commodities and

currencies will result in significant volatility in an investor’s holdings.

WHY ALTERNATIVES?

Benefits of Alternative Investments

7

Alternatives historically have provided diversification benefits and portfolio downside protection

– allowing for more consistent performance over time

Alternative investments historical characteristics:

■ Reduced draw-downs (loss of capital) compared to equity market exposures

■ Less sensitivity to equity market movements and volatility

■ Lower correlation to traditional stock and bond portfolios

-20% -37%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

2007 2008 2009

Calendar Year Returns

Morningstar Multialternative Category

HFRI Fund Weighted Composite

S&P 500

-20

-15

-10

-5

0

May-11 Jun-11 Jul-11 Aug-11 Sep-11

Ma

xim

um

Dra

wd

ow

n (

%)

Maximum Drawdown (May 2011 – Sept 2011)

Morningstar Long/ShortEquity Category

Morningstar MultialternativeCategory

S&P 500 Index

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio.

Diversification does not ensure against market risk. You can not invest directly in an index. Past performance is no guarantee of future results. The HFRI Fund Weighted Composite

Index is a global, equal-weighted index of over 2,000 single-manager funds that report to HFR Database. Constituent funds report monthly net of all fees performance in US Dollar

and have a minimum of $50 Million under management or a twelve month track record of active performance. The HFRI Fund Weighted Composite Index does not include Funds of

Hedge Funds. The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes

in the aggregate market value of 500 stocks representing all major industries. See back page for additional disclosures.

WHY ALTERNATIVES?

Improving Risk & Return Characteristics

8

Alternative investments generate higher portfolio returns with lower volatility

*Indices Represented: Barclays Aggregate Bond Index, S&P 500 Index, HFRI Fund Weighted Composite

6.5

7

7.5

8

8.5

9

3 5 7 9 11 13 15

Retu

rn (

%)

Risk (%)

(Jan 1990 - Dec 2011)*

Traditional Equity-Bond Portfolio Traditional + 20% Alternatives

60/40

portfolio 40/60

portfolio

This Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment-grade fixed rate

bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. The HFRI Fund Weighted

Composite Index is a global, equal-weighted index of over 2,000 single-manager funds that report to HFR Database. Constituent funds report monthly net of all fees

performance in US Dollar and have a minimum of $50 Million under management or a twelve month track record of active performance. The HFRI Fund Weighted Composite

Index does not include Funds of Hedge Funds.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the

aggregate market value of 500 stocks representing all major industries. All indexes mentioned herein are unmanaged and cannot be invested into directly. Past performance

is no guarantee of future results.


Fortigent Investment Process

9


I N V E S T M E N T P R O C E S S

Core Satellite Framework

10

An Intelligent Approach to Portfolio Construction

Fortigent surrounds a core allocation of diversified

alternatives with five distinct satellites:

Core Strategies

■ Representative of the broad universe of alternative investment

strategies

■ Multi-strategy in nature; serves as the anchor for each portfolio

Long/Short Equity

■ Hedged strategies that maintain long and short positions in

equities

Diversified Credit

■ Strategies focused on the fixed income opportunity set

Event Driven

■ Strategies executing trades based on varying forms of

corporate activity, such as mergers, bankruptcies, etc

Market Neutral/Relative Value

■ Non-directional strategies that exploit valuation discrepancies

between securities of any type

Trading Strategies

■ Diversifying strategies that offer uncorrelated sources of

returns through investments in global securities markets

CORE:

Diversified

Alternatives

DIVERSIFIED

CREDIT

TRADING

STRATEGIES

EVENT

DRIVEN

MARKET

NEUTRAL /

RELATIVE

VALUE

LONG / SHORT

EQUITY


There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified

portfolio. Diversification does not ensure against market risk.

Market Neutral strategies seek to create a portfolio not correlated to overall market movements and insulated

from systemic market risk.

Long/Short is an investment strategy generally associated with hedge funds. It involves buying long equities that

are expected to increase in value and selling short equities that are expected to decrease in value.


Institutional Level Due Diligence

11

Due diligence: More than just crunching numbers

Fortigent populates the core and satellite allocations from its platform of “best of breed” managers

■ 15 year history investing with alternative investment managers enables Fortigent to carefully evaluate the rapidly evolving field of alternative investment mutual funds

■ An unbiased, open architecture approach to manager selection

■ Rigorous search, selection, and ongoing due diligence of investment managers

■ Full transparency requirements for manager approval

7 STEPS

Idea

Sourcing

We use

proprietary

databases,

industry contacts

and publications,

direct

solicitation, and

ideas from our

community

of advisors

Quantitative

Screening

Comprehensive,

subtractive

process utilizing

the foremost

industry databases

Risk

Analysis

We focus on

multiple

measures of risk

(volatility,

drawdowns,

upside /

downside

ratios, Sharpe,

tail risk, etc.)

Qualitative

Analysis

Evaluation of the

investment

professionals,

philosophy,

process and

investment

approach, and risk

management

Operational

& Compliance

Analysis

Focus on

trading, risk

management,

portfolio

management,

and firm

integrity

Onsite

Verification

Onsite visits

serve to re-

validate the

quality of the

investment

team, business,

and investment

solution

Formal

Approval

Two-level

approval

process –

research

team and

executive

team

Standard deviation: A historical measure of the variability of returns. If a portfolio has a high standard deviation,

its returns have been volatile; a low standard deviation indicated returns have been less volatile.

Correlation is a statistical measure of how two securities move in relation to each other. Correlations are used in

advanced portfolio management.


Fortigent Portfolios

1

2 ©2012 Fortigent, LLC.

Alternative Strategies -

Growth

Alternative Strategies – Growth with

Income

Alternative Strategies – Income with

Moderate Growth

13

Fortigent offers portfolios targeting three distinct investment objectives:

P O R T F O L I O S

Strategies for Different Investors

■ Designed to capture the

performance of a traditional

40/60 equity/fixed income

portfolio with lower volatility,

improved maximum

drawdown potential, and

lower market beta





improved maximum


lower market beta





improved maximum


lower market beta


Alternative strategies may not be suitable for all investors and should be considered as an investment for

the risk capital portion of the investor's portfolio. The strategies employed in the management of

alternative investments may accelerate the velocity of potential losses.

Beta measures a portfolio's volatility relative to its benchmark. A Beta greater than 1 suggests the portfolio

has historically been more volatile than its benchmark. A Beta less than 1 suggests the portfolio has

historically been less volatile than its benchmark.

P O R T F O L I O S

Strategies for Different Investors

14

Determine the investment objective most suitable for your goals

Fortigent Alternative Strategies fall into two categories:

Alternative Strategies Enhanced

■ Designed for clients looking to grow their assets with a focus on risk tolerant managers

■ Model implemented by using:

■ More directional or higher volatility managers

■ Occasionally overweight satellite sectors more correlated to global markets

Alternative Strategies

■ For clients who are looking to grow their assets but are concerned with reducing volatility and the impact of down markets

■ Model implemented by using:

■ Less directional or lower volatility managers

■ Occasionally overweight satellite sectors less correlated to global markets

Strategy Growth

Growth with

Income

Income with

Moderate Growth

Alternative Strategies + + +

Alternative Strategies Enhanced + +

Benchmark (Stock/Bond) 80/20 60/40 40/60

The unmanaged index used for performance comparisons representing stocks is the Russell 3000 Value Index and representing bonds is the Barclay’s

Capital Aggregate Bond Index. The illustrated indexes are unmanaged and can’t be invested into directly.

This Barclays Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S.

investment-grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-

backed securities.

The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents

approximately 98% of the investable U.S. equity market. As of the latest reconstitution, the average market capitalization was approximately $4 billion; the

median market capitalization was approximately $700 million. The index had a total market capitalization range of approximately $309 billion to $128

million. ©2012 Fortigent, LLC.


Tactical Management

15

Alternative investments provide exposure to a broad set of asset classes,

each with a unique set of return and risk drivers

*For Illustrative Purposes Only

Tactical portfolios are designed to be monitored over a shorter time frame to potentially take advantage of

opportunities as short as a few months, weeks, or even days. For these portfolios, more timely changes may allow

investors to benefit from rapidly changing opportunities within the market.

FACTORS CONSIDERED*

Fundamentals Credit/Default

Trends

Risk/Volatility Event Risk Interest Rate

Risk

Leverage Technicals

Each alternative investment category has its own risk/return drivers

■ Understanding the spectrum of risk is integral for making portfolio allocation decisions

■ Understanding the sources of return is critical for assessing periods of opportunity and risk

Examples:

■ Long/short equity managers must pay close attention to corporate fundamentals, cross correlations, and the macro environment

■ Diversified credit managers need to understand supply and demand trends, corporate fundamentals, investor preferences, default and recovery expectations, and the interest rate environment


Important Disclaimers & Definitions

This presentation is for illustrative purposes only. Past performance is not indicative of future results. The information contained in

this presentation has been gathered from sources we believe to be reliable, but we do not guarantee the accuracy or completeness of

such information, and we assume no liability for damages resulting from or arising out of the use of such information.

The performance numbers displayed herein may have been adversely or favorably impacted by events and economic conditions that

will not prevail in the future. The index is unmanaged and does not incur management fees, transaction costs or other expenses

associated with investable products. It is not possible to directly invest in an index. All returns reflect the reinvestment of dividends

and other income. Manager composites are gross of all fees, except trading costs. Mutual fund returns are net of all fees.

Performance results do not reflect the separate advisory fee that may be charged by your investment advisor (for example, an

advisory fee of 1% compounded over a 10-year period would reduce a 10% annual return to an 8.9% return).

Morningstar Multialternative

These funds offer investors exposure to several different alternative investment tactics. Funds in this category have a majority of their

assets exposed to alternative strategies. An investor’s exposure to different tactics may change slightly over time in response to

market movements. Funds in this category include both funds with static allocations to alternative strategies and funds tactically

allocating among alternative strategies and asset classes. Average Gross short exposures is greater than 20%.

Morningstar Long-Short Equity Strategy

Long-short portfolios hold sizable stakes in both long and short positions in equities and related derivatives. Some funds that fall into

this category will shift their exposure to long and short positions depending on their macro outlook or the opportunities they uncover

through bottom-up research. Some funds may simply hedge long stock positions through exchange-traded funds or derivatives. At

least 75% of the assets are in equity securities or derivatives.

16


Investment Objectives

Growth—will be targeted to an allocation of 80% in equity-oriented alternatives, such as long/short equity and event driven strategies, and

20% in diversifying alternatives (including a 2% cash position), such as market neutral and trading strategies. Investors in this portfolio

should have a long time horizon, as performance can deviate from traditional mix of equities and fixed income in short time periods. The

portfolio is lower volatility in nature compared to traditional asset class mixes; therefore, the portfolio is expected to lag in sharp market

rallies but outperform in market declines.

Growth with Income—will be targeted to an allocation of 60% in equity-oriented alternatives, such as long/short equity and event driven

strategies, and 40% in core alternatives (including a 2% cash position) and diversifying alternatives, such as diversified credit, market

neutral, and trading strategies. Investors in this portfolio should have a long time horizon, as performance can deviate from traditional mix of

equities and fixed income in short time periods. The portfolio is lower volatility in nature compared to traditional asset class mixes; therefore,

the portfolio is expected to lag in sharp market rallies but outperform in market declines.

Income with Moderate Growth—will be targeted to an allocation of 40% in equity-oriented alternatives, such as long/short equity and

event driven strategies, and 60% in core alternatives (including a 2% cash position) and diversifying alternatives, such as diversified credit,

market neutral, and trading strategies. Investors in this portfolio should have a long time horizon, as performance can deviate from

traditional mix of equities and fixed income in short time periods. The portfolio is lower volatility in nature compared to traditional asset class

mixes; therefore, the portfolio is expected to lag in sharp market rallies but outperform in market declines.

17

Tracking # 1-116381 Expiration11/13

Asset allocation does not ensure a profit or protect against a loss.

Tactical portfolios are designed to be monitored over a shorter time frame to potentially take advantage of opportunities as short as a

few months, weeks, or even days. For these portfolios, more timely changes may allow investors to benefit from rapidly changing

opportunities within the market.

The strategic asset allocation process projects a three- to five-year time period. While the strength of the asset allocation decisions is

retested often, we do not anticipate making adjustments until midway through the strategic time frame, which generally is about every

two to three years. If significant market fluctuations warrant a change, adjustments may be made sooner.

Investing in mutual funds involve risk, including possible loss of principal. Investments in specialized industry sectors have additional

risks, which are outlined in the prospectus.

An investment in Exchange Traded Funds (ETFs), structured as a mutual fund or unit investment trust, involves the risk of losing

money and should considered as part of an overall program, not a complete investment program. An investment in ETFs involves

additional risks: not diversified, the risks of price volatility, competitive industry pressure, international political and economic

developments, possible trading halts, Index tracking error.

Investors should consider the investment objectives, risks, charges and expenses of the investment

company carefully before investing. The prospectus contains this and other information about the

investment company. You can obtain a prospectus from your financial representative. Read carefully

before investing.

18

Important Disclaimers

Important Disclaimers A Market Neutral strategy seeks to profit from both increasing and decreasing prices in a single or numerous markets. Market-neutral

strategies are often attained by taking matching long and short positions in different stocks to increase the return from making good stock

selections and decreasing the return from broad market movements. Market neutral strategists may also use other tools such as merger

arbitrage, shorting sectors, and so on.

Long/Short funds focus on managers who go long and hedge against the market through options or shorting equity securities with the goal

of outperforming the market while limiting volatility. These funds tend to have a higher correlation to equities than other alternative

strategies and, therefore, are most appropriate for more aggressive portfolios.

Default Rate is the interest rate charged to a borrower when payments on a revolving line of credit are overdue. This higher rate is applied

to outstanding balances in arrears in addition to the regular interest charges for the debt.

Low correlation means that different asset types have not performed in the same way: When returns on some asset types were declining,

returns on others were gaining.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does

not ensure against market risk.

Alternative strategies may not be suitable for all investors and should be considered as an investment for the risk capital portion of the

investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.

19

Not FDIC/NCUA Insured | Not Bank/Credit Union Guaranteed | May Lose Value | Not Guaranteed by any Government Agency

Not a Bank/Credit Union Deposit

Securities and Advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.

Tracking # 1-116381 Expiration11/13

LPL Financial is the sponsor of the Model Wealth Portfolios program. Fortigent is an investment strategist that provides model portfolio

recommendations to LPL Financial. LPL Financial implements such model portfolio recommendation in client accounts. LPL Financial

and Fortigent are affiliated companies.

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